ANN ARBOR, Mich.—The automotive industry has dug itself out of the Great Recession, but there's plenty of uncertainty on the horizon.
Light vehicle sales in the U.S. have grown every year since bottoming out in 2009, eclipsing pre-recession highs of 16 million-plus in the last three years. While 2017 still is projected to flirt with the 17 million mark, something the industry has achieved only four times before, early figures suggest demand in the U.S. is leveling off.
The industry has produced back-to-back years of record light vehicle production at 17.48 million in 2015 and 17.53 million in 2016. But the year-over-year growth looks to be coming to a halt based on figures through the first five months of 2017, which are off by about 2 percent compared to 2016. Most forecasts called for the industry to post another 17 million in light vehicle sales, but the seasonally adjusted rate through May has the industry missing that mark narrowly—at about 16.8 million units.
"Overall vehicle sales for the U.S. are plateauing, without a doubt," said David Andrea, executive vice president of research at the Center for Automotive Research.
"It will get harder to make year-over-year comparisons. The one positive piece in here is exports, that's where keeping the NAFTA sourcing platform in place is so critical for the cost positioning for the North American industry. For the industry overall, it really becomes an issue of mix between cars and trucks. Even if you have a flat or slightly down top line, you can have segments that are still growing in that environment. Who your customer is and what platforms you're on becomes that much more critical for a supplier."
As light vehicle sales level off, incentive spending and inventory levels continue to rise. For May, incentive spending averaged $3,583 per vehicle, up $241 from May 2016 according to a report in Automotive News, a sister publication of Rubber & Plastics News.
The report also detailed climbing inventory levels with the industry's average increasing above 70 days for the first time since 2009. More than 27 percent of new vehicles sold in May sat on dealer lots for more than 90 days, also an increase compared to 25 percent in 2016.
Stephanie Brinley, a senior analyst for IHS Automotive who covers North and South America, said in an email that if auto makers carry excess inventory, they may slow production in the future.
Some auto makers are seeing inventories increase in part based on product lifecycle and production needs for later in the year, and in part on market performance. She added that auto makers have placed more focus on matching production to demand in recent times.
"We don't seem to be selling as many as we're making," said Jay Doyle, general manager for Trelleborg's North American automotive hub. "I'm a little bit concerned about the second half softening up. Unless they do some sort of a fire sale and start clearing out these lots, I can see adjustments coming in the second half of 2017. I don't know if we're going to hit that 17 million mark that everyone expected."
Andrea said the industry is more disciplined than it has been in cycles past, citing that the number of units per hour are being pulled back to ensure production stays balanced with inventory levels.